Advice on Chasing Late Payments

The issue of late payments continues to be a problem for many small businesses. Confederation of British Industry (CBI) statistics give £31,000 as the average amount that UK businesses are owed and put the total of outstanding late payments at over £30 billion. According to Matthew Fell, the CBI’s Director for Competitive Markets, “…many firms are being held back from growing and creating jobs because they are owed thousands of pounds.” This, he says, is unacceptable, and he advocates measures to “create a culture of prompt payment in all businesses.”

Suggestions for Promoting the Culture

The CBI has volunteered a number of suggestions in response to the government’s late payment consultation, but warns that introducing heavy-handed regulations could be counter-productive, discouraging dealings with UK firms and giving overseas competition an advantage. They therefore recommend voluntary policies and procedures to encourage the culture of prompt payment.

These include setting a target maximum payment term which could depend on the complexities of contracts. Another recommendation is to make policies more transparent so that supplier payment arrangements can be seen on company websites. The organisation also believes that the term ‘grossly unfair’ in the 2013 Late Payment Regulations is too vague and should be clarified.

Taking Legal Action

Many small businesses are fearful of charging the interest they are legally entitled to on late payments. They tell their bookkeepers that they fear that customers will take their business elsewhere if they do so.

Others whose efforts at chasing payments have got nowhere are considering whether to take their debtors to court. But what are the financial implications of this? What would it cost and what could be recovered from the debtor?

One firm of debt recovery solicitors have made it easy to work it all out. Lovetts have put a claim calculator on their website for anyone to use. Based on specified fixed fees, it gives a breakdown of amounts that can be claimed and a minimum figure of what would be recoverable.

For example, on a debt of £5,000 that is 92 days overdue, the statutory interest would be £107.12, with a compensation amount of £70. When the fixed fee recoverable outgoing of £102 is included, this brings the minimum claim amount to £5279.12.

Outsourced bookkeepers know that other legal costs could also be recovered making the action worth taking, provided there is a cast iron case that the debt is owed and the payment terms have clearly been breached. If you are worried about how to chase late payments, it’s worth discussing it with your bookkeepers as a first step. 

The Importance of Good Financial Record Keeping

How would you fare if HMRC decided to come and inspect the records that back up your accounts? It states that it finds failings in nearly 50% of the businesses it investigates. If it finds untidy records haphazardly stored in boxes, inaccurate or rounded amounts listed, cash books not in the right order, or any other incorrect aspect of record keeping, it has the power to fine offenders up to £3,000. It doesn’t matter how small your business is, you must comply with the record keeping regulations.

Other Reasons to Keep Good Records

That is only one reason why good financial record keeping is important to any business. Unless you or your bookkeepers keep all your records in good order, you could find your business hitting all sorts of challenges, like getting all your VAT and tax returns in on time, being able to source the materials you need for production or to fulfil your orders, and then having the cash available to meet your obligations.

Do you know how much revenue you are generating and where it is coming from; where the most profit lies; what you are spending on, and how much; what your imminent liabilities are; how much you are owed; whether debtors are paying up on time? If you don’t know these things, you won’t be in a position to recognise cash flow difficulties looming and be proactive in fending them off. Your financial fog will have you deep in the mire and floundering to get out.

Know the State of your Business

It’s much better to be always aware of the cash flowing in and out of your business, so that you know whether performance levels are stable or moving up or down. You can have this awareness if your records show daily cash and credit or debit card transactions, from small sales to major payments for stock. You need to make sure your bookkeepers always receive all the information they need to properly maintain your records.

Help to Stay Compliant

All records must be kept accessible for at least the six years before the date your tax return is due. Anything pertaining to earlier dates can be destroyed. Your outsourced bookkeepers will be happy to deal with this for you. They know exactly how long you must keep all your invoices, banks statements, payroll details, bills and expenses receipts. 

Money no Object for Flood Relief

“Whatever money is needed, we will spend it,” the Prime Minister said recently. Welcome news if you are among the million or so businesses that the Environment Agency thought would be badly affected by the severe weather. The effects of the severe weather have added up to a bitter blow to the economy, and have been devastating to small businesses without the resources to withstand the financial knock backs. While mobilising the military can offer more practical help, financial futures are looking very bleak indeed.

Help from Government Grants

When the government’s details on the finances were published, they stated that grants of up to £5,000 would be issued to businesses to pay for repairs and flood defences for the future. This is in addition to the £10 million to be set aside for flood stricken farmers, who can apply for grants at the end of February.

Help with Taxes

Bookkeepers will have taken note that a tax deferral scheme was also announced, extending by three months all deadlines for VAT, employers’ NI and Corporation Tax for affected businesses. The government will also reimburse local authorities for waiving business rates for a three month period for those businesses.

Support from the Private Sector

Non-governmental organisations are also apparently being helpful. Business groups and insurance companies are getting together to see how businesses can be helped. Following the example of RBS, Barclays and Lloyds are offering similar interest free loans from a $250 million pound fund. HSBC, Nationwide and Santander have also set up support packages and programmes for their customers.

You will, of course, need to be proactive in pursuing these avenues of support. Your outsourced bookkeepers are the ones to talk to about what applications you can make, and how to go about it. It’s going to take time to administer and issue the grants and other packages so getting your applications in early is important.

The Role of Social Media

You could be considering your social media strategy as well, as this is also playing a part and in many cases getting more immediate help to businesses. During the storms many posted on Twitter that they were #openforbusiness despite the weather, so that their customers could support them. The Flooding on the Levels Action Group (FLAG Somerset) also used Twitter, as well as Facebook, to inform local businesses and residents about what was happening and call for specific support and help, which has been having very positive results in getting much needed items and voluntary labour to affected areas.